Apple Stock Most Likely To Rise 9% From Here But Could Fall 18%, Raymond James Projects

• Apple Inc. AAPL shares have declined steadily in December and are down 3 percent in the last one month.
• Raymond James’ Tavis C. McCourt maintained a Market Perform rating on the company, with a price target of $120.
• While weakness in demand is likely to exert pressure on Apple’s performance, the company’s shares already reflects this, McCourt stated.

Several notable supply chain suppliers to Apple that have pre-released, reported or guided to weaker-than-expected results over the last few weeks, analyst Tavis McCourt said. He added that although this weakness has been contributed by incremental weakness in the Android ecosystem, weakening y/y sell through trends for the iPhone are also likely to have played a part.

“From a sell through perspective, our data points remain quite strong in China, with modest weakness in U.S. and Europe for both iPhone and the broader smartphone market,” McCourt wrote. He added, however, that their US web survey suggested modestly fewer iPhone upgrades are likely in the next 3-12 months than a year ago.

“March will almost certainly be the most difficult comp of the year for Apple, with the reported iPhone 6C likely benefitting the June quarter more fully and the iPhone 7 starting to kick in during September,” the analyst mentioned.

The March iPhone unit estimate has been reduced from 58 million to 53 million and the full-year estimate has been reduced from 229 million to 224 million. The non-GAAP EPS estimates for FY16 and FY17 have been lowered from $9.33 to $9.16 and from $10.33 to $9.88, respectively, to reflect the “mounting evidence of weaker demand trends in Apple’s supply chain.”

McCourt believes that these data points are largely reflected in Apple’s share price, and have been the reason for their underperformance from the peak earlier in 2015 as well as for their underperformance in C4Q.

The analyst said that in the optimistic scenario Apple would reach a 15.6x P/E on earnings of $10.19, which translates to $159 per share, representing about 44 percent upside potential. The negative scenario suggests a downside risk to $90, representing an 18 percent decline. The most likely scenario remains at a 13x multiple on the CY16 non-GAAP EPS estimate of $9.26. This situation translates to upside of 9 percent, giving the price target of $120.